Saturday, July 18, 2009

Rocky Mountain Ratings

A recent decision by a district court in Colorado, Health Grades, Inc., v.Robert Wood Johnson University Hospital, Inc.(HT to Eric Goldman and Mike Masnick at Techdirt) raises once again courts’ confusion over foundational holdings by the Supreme Court in its 1991 Feist compilation opinion, confusion that has resulted in inappropriate extension of copyright to facts, prices, and ratings. In the Colorado case, the opinion was on a Rule 12(b)(6) motion to dismiss, meaning that there has been no decision on the merits of the protectibility of the material in question, and also meaning that there can be no present appeal.

The Colorado case is hardly the first time a ratings company has sought to stop another company from publicizing a favorable review. An early, pre-Feist opinion, Consumers Union of United States, Inc. v. General Signal Corp., 724 F.2d 1044 (2d Cir. 1983), vacated a preliminary injunction against a vacuum manufacturer which quoted accurately from plaintiff’s review. Here are the quotations used:

-In fact, it's the only one Consumer Reports calls an “adequate substitute for a full-sized vacuum.”

On appeal, the Second Circuit observed, “In truth, CU is not really objecting to Regina's copying CU's expression. The statement of policy in its magazine and its position in its brief before us is that any mention of CU in commercial advertising will diminish its effectiveness as an unbiased evaluator of products.” Based on this, it is not surprising the court of appeals vacated the injunction, but it did not examine what was copyrightable in plaintiff’s work, probably because the quotations were from an article. The copying was deminimis at best, but the decision rested on fair use.

The facts in the Colorado case were described this way by Judge Kane:

“Health Grades is a Delaware corporation based in Golden, Colorado.It is in the business of developing and distributing objective ratings of hospitals, physicians and other healthcare providers.Its “1-3-5 Star” ratings and provider awards are based on data and information obtained from a variety of sources, most of which are publicly available.Health Grades determines its ratings and awards for individual providers by analyzing these data using its own proprietary methodologies. Health Grades publishes its ratings and awards for healthcare providers, along with other information, on its website.”

“Members of the public may access and view the ratings, awards and other information on Health Grades’ website by executing a “click-through” Limited License and User Agreement (Limited License) set out on the website. The Limited License grants “a personal, revocable,

nonexclusive, non-transferable license to access and view this Site and the Site Materials, and to copy, download, store and/or print only a single copy of any Site Materials, solely for your non-commercial use and not for resale or distribution to anyone else.”

“RWJ is a hospital located in Hamilton, New Jersey.From 2004 through 2006, RWJ, through its authorized employees, accessed the Health Grades website more than 200 times after entering into the required Limited License.RWJ then proceeded to use materials from the

Health Grades’ website, specifically including Health Grades’ name and the ratings and awards it had given RWJ, in at least nine press releases and articles promoting the hospital and/or its services.Health Grades’ name and its ratings of and awards to RWJ were also published on the

RWJ Hamilton website.RWJ did not have permission from Health Grades to use its name, ratings or awards in this manner. “

In rejecting defendant’s argument that the ratings are facts, and therefore unprotectible, the court held:

“According to its complaint, Health Grades’ healthcare ratings for RWJ and other medical providers are a product of Health Grades’ collection of data and information from a variety of sources, which it then analyzes and weighs using its own proprietary methodologies to produce a Health Grades’ rating of 1, 3 or 5 stars and/or awards for each healthcare provider reviewed. These ratings and awards are not, therefore, facts “discovered” by Health Grades in the manner described in Feist, but rather are expressions created by Health Grades.These ratings only exist because Health Grades has selected, weighed and arranged facts it has discovered to present the collected data in a form, Health Grades’ ratings and awards for specific health care providers, that can be used more effectively by the reader to make judgments about providers.Taking Health Grades’ allegations as true, therefore, its healthcare provider ratings are independent creations by Health Grades and display at least the minimal degree of creativity necessary to be deemed originalexpressions.”

The court confused Feist’s holding that an original selection, coordination, or arrangement of facts is protectableas a compilation, with protection for the facts themselves. Originality will always be the result of judgment, artistic, or otherwise, but not all exercises of judgment are copyrightable. The judgment that this is the best route to go home is no more protectible than a judgment about what a fair price is for a coin, a car, a commodities futures contract, or how many stars a hospital deserves.

To be fair to Judge Kane, he relied on an opinion by the great judge Pierre Levalin CCC Information Services, Inc. v. Maclean Hunter Market Reports, Inc. , 44 F.3d 61 (2d Cir. 1994). CCC Information Services proves that even the great have not so great days, and Judge Leval would, I believe, agree that the opinion was not successful. In reversing a district court opinion that had found that the Red Book was unoriginal, the court of appeals held:

The district court was simply mistaken in its conclusion that the Red Book valuations were, like the telephone numbers in Feist, pre-existing facts that had merely been discovered by the Red Book editors. To the contrary, Maclean' s evidence demonstrated without rebuttal that its valuations were neither reports of historical prices nor mechanical derivations of historical prices or other data. Rather, they represented predictions by the Red Book editors of future prices estimated to cover specified geographic regions. According to Maclean's evidence, these predictions were based not only on a multitude of data sources, but also on professional judgment and expertise. The testimony of one of Maclean' s deposition witnesses indicated that fifteen considerations are weighed; among the considerations, for example, is a prediction as to how traditional competitor vehicles, as defined by Maclean, will fare against one another in the marketplace in the coming period. The valuations themselves are original creations of Maclean.

In the end, however, the decision properly turned on the originality of the Red Book as a compilation—and therefore an infringement—of the compilation authorship, and thus the court's discussion of valuations as individually protectible is dictum. The dictum is erroneous. Judge Leval' s basic point—that valuations are constructed not discovered—is true enough, but not determinative. Protection is not based on one being merely the originator of the material in question: If that were true, protection could be granted to ideas, methods of operation, systems, and the like. Instead, to be an “original work of authorship,” the material must also (1) not be deminimis, and (2) not be an idea, method of operation, or the like. Prices fail on both counts, as the Copyright Office observed in Examining Division, Literary Online Practices, Chapter 20. C.II. D.3.d (2003): “Prices are not generally considered copyrightable because the determination of prices is considered a business decision and thus they represent facts”). The Office also later criticized CCC Information Services in a May 25, 2005 “Statement of Interest of the Register of Copyrights” submitted in New York Mercantile Exchange, Inc. v. IntercontinentalExchange, Inc., 389 F. Supp. 2d 527 (S.D. N.Y. 2005), where the court held: “The argument that NYMEX settlement prices do not embody facts is without merit. The numerical settlement price that arises from NYMEX' s judgment and discretion rejects no more than pure fact or idea of the present price of a futures contract. Regardless of the judgment and creativity involved in determining each NYMEX settlement price, there is plainly only one settlement price . . . Moreover, because NYMEX's settlement prices are the actual prices and are the only way to express the idea of a settlement price stated in numbers—the expression of the price is therefore not sufficiently distinct from the idea of the price to warrant copyrighted protection.”). See also Miracle Blade, LLC. v. Ebrands Commerce Group, LLC., 207 F. Supp. 2d 1136, 1150–1151 (D. Nev. 2002) (“Plaintiff's allegations that defendant copied plaintiff’s price should also not be considered since price is a non-copied plaintiff’s price should also not be considered since price is a non-copyrightable fact.”); Project Development Group, Inc. v. O.H. Materials Corp., 766 F. Supp. 1348, 1354 (W.D. Pa. 1991), aff’d, 993 F.2d 225 (3d Cir. 1993) (“The quantities estimated and prices selected, by nature of the estimate and bid process, do not possess the requisite originality under the copyright laws.”).

Whether CDN's selection and arrangement of the price lists is sufficiently original to merit protection is not at issue here. CDN does not allege that Kapes copied the entire lists, as the alleged infringer had in Feist. Rather, the issue in this case is whether the prices themselves are sufficiently original as compilations to sustain a copyright.

This passage is hopelessly contradictory. The first sentence seems to indicate the court was not evaluating the work as a compilation, a conclusion heightened by the reference to “the prices themselves.” This view is undercut by the Court's final statement of the issue as whether there is sufficient originality as a compilation. Later in the opinion, the court states that “the prices listed are not mere listings of actual prices paid; rather they are CDN's best estimate of the fair value of that coin,” but in the next paragraph the court stated “Our holding that the prices are copyrightable is consistent with . . . CCC

Judge Kane’s holding on the contract claim is worth a separate discussion; while he found the claim preempted under the Copyright Act, he held that a contract claim might not be preempted based on a promise not violate trademark law. One can appreciate plaintiff being irked by defendant’s use of its rating, but the Copyright Act should not be abused to stop what is, even according to Judge Kane, a preempted contract claim.

15 comments:

This is a bit tangential to your discussion, but one thing that comes up from time to time in my business is whether licensing materials (as in the Health Grades case) affects the use of short quotes and things of that sort which would be presumably be considered fair use if they were just in a magazine. In other words, if I license a report to you or your company and that license prohibits quoting from the report in marketing materials without express permission, does the license carry any real weight?

If this one brought you back to a bit of blogging, just wait til the 9th CCA rules on MDY v. Blizzard. ;)

All seriousness aside, it is sobering how often these things simply appear to be flatly "wrong" to industry professionals. It seems to me that the sniff test in many of these reaches is what would you send to the Copyright Office if you wanted to register it?

Here, please file my registration in this creative work: *

Also, this one: **

And: ***, etc.

When reduced to that, it seems to me, admittedly not a lawyer, that you're working with something not even remotely copyrightable. It's totally different from copyrighting a compilation.

Hi Gordon, there is a discussion of this in both then district court judge Pierre Leval and court of appeals judge Jon Newman's opinions in the Salinger case, where the defendant had signed an agreement to get access to unpublished letters. The agreement said he would get Salinger's permission. He didn't, and lost his fair use argument, but both judges pretty much eviscerated the contractual restriction. The cites are: 650 F. Supp. 413 (S.D.N.Y. 1986), and 811 F.2d 90 (2d Cir. 1987).

Michael, I think what happens is that something that is copyrightable as a compilation (in this case I believe a website) gets a valid registration, but the infringement claim is for unprotectible parts of that compilation.

I'm thrilled that you may be blogging again. In regards to the decision, I think it's easier to explain away as an outcome determinative holding. There were around six copyright decisions issued from district courts in the 10th Circuit last month -- all of them (except one, I think) are not consistent with any reasonable interpretation of copyright law.

Perhaps the easier rule to be drawn from this is that judges from the 10th Circuit, which doesn't see many copyright cases, will interpret the law as they see fit. That these judges will issue decisions that reach a desired outcome without consideration of broader structural interests, or future precedent.

“Prices are not generally considered copyrightable because the determination of prices is considered a business decision and thus they represent facts.”

We'll be sure to have this quote (and post) handy around Thanksgiving, when retailers such as Wal-Mart, Target, Best Buy and others resume their annual practice of sending DMCA takedown notices to Web sites who seek to publish so-called "Black Friday" sales price information before the retailers release it themselves.

The 10th circuit is the circuit I live in, and I don't think it has done too badly, despite occasional clunkers like the Health Grades ruling.

I find Health Grades's position to be very peculiar. Can they patent the computation by means of which they arrive at their ratings? Even if they can't, other peoples' ability to copy their ratings doesn't seem as though it could be much of a threat. If Health Grades's ratings are deemed useful and accurate, many would be likely to want to go to the source to get them, not trusting imitators or copyists. The accumulated expertise in performing complex computations is not something a competitor could build up overnight, unless it hired away some of Health Grades's people.

"Can they patent the computation by means of which they arrive at their ratings?"

In re Bilski would make it difficult. However, they probably would keep their methodolgy as a trade secret. They may be changing it every now then to get a better system. Plus this would give them a longer period of protection.

Courts would seem to have a generalized disinclination for allowing others to steal that which the "sweat of the brow," has created. If the alternatives are allowing free-riders on the work of others, or stretching copyright in ways seeming voided by Feist, they will often choose the second.

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This is a personal blog, not a Google blog. It is about my book Moral Panics and the Copyright Wars, published by Oxford University Press. Please don't attribute anything in the blog or the book to Google, which employs me.